Iron ore prices rebound on limited supply

FrancescaFreeman

LONDON (MarketWatch) -- Iron ore prices continued to rebound Tuesday, boosting hopes that a layer of support may be building following last month's spectacular rout.

The spot price of iron ore delivered into China with 62% ferrous content rose 5.8% Tuesday to $146.30 a metric ton, according to The Steel Index, a London-based information provider. This represents an increase of 15.8% on the week.

Price gains in recent days are in sharp contrast to heavy losses throughout October and reflect a rising tightness of supply and persistent demand, said analysts.

"With the miners largely out of the spot market over the past weeks and traders reluctant to sell, availability of iron ore has been very limited," said Oscar Tarneberg, a senior iron ore analyst at TSI. "But traders and mills have been very keen to buy for some time, and the sharply improved levels achieved on cargoes offered today is a reflection of that pent-up demand," he added.

On Oct. 28 prices of TSI's spot iron ore benchmark plunged to $116.90/ton, the lowest level since December 2009 at the height of the global economic crisis.

Prices slumped 32% in the month of October alone as a deterioration in demand for steel put the price of iron ore--a key steel-making ingredient---under pressure.

Although steel production cuts in Europe and China persist, marginal costs of production and potential steel restocking by China in the first quarter of next year should prove supportive of iron ore prices and demand, said analysts at Credit Suisse.

Lakshmi Mittal, CEO and chairman of ArcelorMittal
MT, -5.28%
the world's largest steelmaker, said a few days after iron ore hit this year's low, that he expected $120/ton would be a floor price for spot iron ore.

"We do believe that the current spot price of around $120 per ton is well supported by industry costs," particularly in China, he said. "Some of the [Chinese iron ore] producers have a much higher cost than $120 and a poorer quality, inferior quality and they will continue to import," he added.

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